Morales settles with SEC, agreeing not to associate with investment advisors and paying $130K fine
(Editor’s Note: This story has been updated from an earlier version to include comments from Walter Morales.)
The U.S. Securities and Exchange Commission has settled its civil lawsuit against Walter Morales and his firm, Commonwealth Advisors, sparing the Baton Rouge investment advisor from having to go to trial against the government on charges of defrauding investors and from admitting any wrongdoing in the long-running case.
In return, however, Morales has agreed to be barred from associating with any investment adviser for at least five years and to pay a $130,000 fine.
Additionally, Commonwealth Advisors will have its license revoked by the SEC, though as a practical matter that will have very little effect. Morales closed Commonwealth Advisors in 2013 and transferred the retail, or individual investor, side of the business to an employee-owned firm, 3rd Street Capital Management, with which he is not involved.
In late 2012, the SEC filed suit against Morales and Commonwealth Advisors, alleging fraud and mismanagement that led to the loss of more than $178 million invested in high-yield but risky subprime, residential, mortgage-backed securities. According to the allegations in the suit, Morales lied to his clients about big losses in the risky securities where he’d invested their money, then tried to hide those losses through a complex series of trades between his various hedge funds using fraudulent prices.
Morales has consistently denied any wrongdoing and has attributed the losses to the 2008 collapse of the mortgage-backed securities market. He has also pointed out that the SEC never brought criminal charges against him or accused him of stealing or misappropriating clients’ money.
The settlement closes a sad chapter for the former money manager, once one of the city’s most respected, though it doesn’t end his troubles. Separately, Morales is still embroiled in litigation with some of the 100 of his former clients, who lost millions of dollars with him and have accused him of fraud and breach of fiduciary duty.
The settlement was signed Feb. 15 in the U.S. Middle District Court.
In a statement provided after this story’s original publication, Morales says “I am pleased to put this matter behind me and my family on the terms of the settlement, which were mischaracterized by the SEC’s litigation release. Because the settlement was on a neither admit nor deny basis, there has not been any finding by the SEC or the Court that I or Commonwealth engaged in any wrongdoing.”